A behavioural bias also associated with moments of high turbulence is the development of overly optimistic or pessimistic perceptions, which can lead to decisions that are out of line with the real risk levels of the assets and long-term investment objectives.
This type of bias may intensify the bias known as overconfidence (the investor believes that his/her decisions are more accurate than they actually are), leading him/her to take unnecessary risks.
In times of great turbulence and uncertainty, it is difficult to assess and understand market movements, thus creating favourable conditions for herd behaviour, where many investors make the same type of decisions, not due to the information and assessment they make of the assets, but simply because the majority are doing so. This effect is very strong in bubbles and market crashes.
Investing or divesting only because others are doing it (bandwagon effect or FOMO - fear of missing out) should be avoided, in order to prevent extemporaneous decision-making that is inadequate to your investor profile, and that lead you, for example, to sell securities at extremely low prices, or during market enthusiasm, to buy excessively expensive securities.
There is another known bias in the markets that may find an opportunity to thrive in today's highly uncertain circumstances. This is the tendency to seek opinions that confirm our viewpoint on the evolution of the market (confirmation bias), underestimating opinions that do not fall within this scope, however well-founded they may be.
RECOMMENDATIONS FOR THE DISTRIBUTION OF DIVIDENDS
Depending on their situation and the market climate and its prospects, issuers may consider revaluing their dividend distribution policy.
The CMVM issued a
recommendation for issuers wherein proposals for the distribution of dividends should be weighted, duly justified, clear, accommodated and justified in view of the medium term challenges and risks of each issuer at the present time, and according to its financial capacity to face this moment of high uncertainty.
In this recommendation, the CMVM highlighted the importance of the quality of information to be provided to investors, so that they may, in the context of general meetings, take the decisions that best protect their interests and the medium and long-term interests of the companies they are shareholders of. In particular, with regard to proposals for the distribution of dividends or repurchase of shares, the CMVM recommended that they “be based on high standards of informative quality” and that “in a clear and understandable way, provide shareholders with in-depth knowledge of their rationale and its framework in the face of medium-term challenges posed by current circumstances”.
REMOTE GENERAL MEETING. HOW TO PARTICIPATE?
Considering the constraints caused by the response to the pandemic, particularly concerning social distancing, certain measures were taken regarding the holding of general meetings (GM) of issuers, adjusted to this new reality.
These can be carried out remotely, using telematic means, namely video or teleconference, allowing communication with the participants of that meeting through means of distance communication. They can also be mixed by combining telematic and face-to-face means. In these cases, there may be several possibilities, granting certain participants the physical presence and to others, simultaneous access through means of distance communication, with or without interaction, decentralised or by using common physical places where video access is available for the meeting place.
Information prior to the general meeting
- The specific manner in which the meeting is to be held shall be included in the convening notice issued by the issuer, available on the company's official website and on the CMVM website
Information Disclosure System;
- The means to be used to identify the shareholders, as well as all aspects related to obtaining information or exercising rights in the context of the general meeting, should be defined in the convening notice, as well as the means of contact should, for example, a shareholder need to carry out or clarify any procedure related to his/her participation.
Identifying yourself in order to participate
- The general rules remain unchanged. The shareholder must indicate his/her intention to participate in the general meeting to the chair.
- At the request of the shareholder, the financial intermediary maintains the duty to communicate to the chair of the general meeting board, the number of shares held by the shareholder.
- In these procedures, in the particular context wherein we find ourselves, the use of remote means of communication, in particular the use of electronic mail, should be the most privileged means of distance communication.
In view of the current situation, the maximum deadline for holding general meetings was also modified and extended until 30 June 2020.
TIPS FOR TACKLING INCREASED FRAUD RISK
The CMVM recommends investors to be vigilant of fraud that may arise, particularly digital fraud considering that, in the current circumstances, there are more people on the internet and social networks. In this sense, they should pay attention to:
- Fraud associated with "worthy causes"
Situation wherein investment is misleading based on a worthy cause (for example, production of protective equipment in the current health context, aiding health professionals and the most vulnerable classes), and promising high returns.
- Fraud associated with market uncertainty and volatility
Using the volatility and apprehension experienced in financial markets, proposals can be made to transfer existing investments to others with higher returns and that seem to be, including risks that are proportionally higher and that do not contain clear information on the instrument and the entity concerned.
- Fraud associated with asset transfers
Sending emails, SMS, Whatsapp messages or others, indicating that a fund or financial intermediary wherein you have your investment is in crisis due to the impact of the current pandemic, suggesting and pressing for the transfer of these investments to a new institution.
Safeguard yourself by:
- Rejecting offers that appear out of nowhere, unsolicited, be sceptical.
- CMVM Carefully analyse ads/proposals on social networks and check if those entities are
registered on the CMVM website
- Do not open emails or links from unknown sources.
- Do not allow yourself to be pressured into taking an investment decision in short period. Ponder beforehand.
- If an institution calls you unexpectedly with an offer, ask and use the contact details and name to verify that it is a authentic financial intermediary.
- Do not give your personal details (personal, bank, investment details) to people and entities that you do not know.
- To clarify any doubts or report a suspicious situation, consult the CMVM website or call the investor support line 800 205 339 (toll free).
- See information on Covid-19, namely the measures taken by the CMVM on the
page that concerns this subject on our website.